Good morning, ladies and gentlemen, and welcome to Gibson Energy's Q1 2022 Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Mark Chyc-Cies, Vice President, Strategy, Planning & Investor Relations. Mr. Chyc-Cies, please go ahead.
Thank you, operator. Good morning, and thank you for joining us on this Conference Call discussing our Q1 2022 operational and financial results. On the call this morning from Gibson Energy are Steve Spaulding, President and Chief Executive Officer, and Sean Brown, Chief Financial Officer. Listeners are reminded that today's call refers to non-GAAP measures and forward-looking information. Descriptions and qualifications of such measures and information are set out in our continuous disclosure documents available on SEDAR. Now, I'd like to turn the call over to Steve.
Thanks, Mark. Good morning, everyone, and thank you for joining us today. I'm pleased to say we're having a solid start to 2022 in both our infrastructure and marketing segments, with each coming in slightly ahead of our budgeted estimates. Our adjusted EBITDA of CAD 121 million and distributable cash flow of CAD 79 million are strong results. These have further strengthened our payout and leverage ratios of 68% and 2.7 times, both being below our targeted range. Given our solid financial position, we've been able to increase our return on capital to shareholders. So far this year, we increased our dividend by 6%. We've also bought back roughly CAD 22 million in shares. Our focus remains on deploying CAD 150 million-CAD 200 million in growth capital each year.
To reach this range this year, it'll be a combination of tankage, DRU phases, and energy transition projects. This mix will move around each year. If you look at CAD 1 billion or so in capital we've deployed over the last four years, less than half of that capital was tankage. Our target of CAD 150 million in capital for this year is really lagging effect of a slowdown we've all seen in our sector during COVID. As a result, it is a contingent on timing of sanctioning additional projects throughout the balance of the year. As we look forward, we remain confident that the discussions we're having today will enable us to deploy CAD 150-CAD 200 million, if not more, if some of the larger opportunities we're pursuing materialize.
On the DRU, we continue to see strong economics for the DRU value chain relative to pipelines, and we expect these fundamentals will remain well into the future. This outlook is informed by the strong market for crude, ConocoPhillips is moving to the US Gulf Coast, and how refining customers are seeing a meaningful improvement in refinery runs versus dilbit. This is helping us advance discussions for additional phases, and it's a major focus for us right now. Discussions continue for tankage at Edmonton, and we believe Gibson is very well- positioned to support shippers on TMX, optimize their crude netbacks, and meet stream requirements. Continuing on at Edmonton, I'm happy to announce that our Edmonton terminal. We placed in service the biofuels blending project last month. The project was delivered ahead of schedule and on budget.
It was sanctioned early last year under our MSA with Suncor, our principal customer at the terminal. Capital cost on that project was roughly 1.5 times a tank, and it's under a 25-year term. It's ESG positive and aligned with energy transition. We believe we will continue to build out additional infrastructure at Edmonton under this MSA to support Suncor's need in energy transition fuels over the coming years. More broadly, we would stress we're very focused on pursuing energy transition-aligned infrastructure opportunities. We want these opportunities to leverage our existing skill sets. We see these type of opportunities representing an increasing proportion of our capital projects over time. We believe energy transition as a significant infrastructure investment opportunity for us.
We've put together an energy transition team to identify and develop opportunities in this space, and we're working on several projects, currently mostly in the renewable diesel value chain. If we're successful, we would expect these to generate very attractive risk-adjusted returns for our shareholders and likely push us back to that CAD 300 million in growth capital per year that we were at prior to COVID. These are very interesting opportunities, but there's still a lot of work to be done. Shifting to ESG, an area we always continue working to move forward. During the quarter, we were awarded the Bronze Class of Distinction in the S&P Global 2022 Sustainability Yearbook.
With only four companies globally receiving a metal distinction within the oil and gas storage and transportation industry. We were pleased all of our work continues to be recognized by rating agencies as it provides external confirmation that we are meeting our goal of being a sector leader in ESG. We believe Gibson is a great fit for the ESG-minded investor. We have the lowest carbon intensity of our peers, and the steps we have taken have earned us sector-leading ESG ratings. To close, we feel we've had another strong quarter and a great start to the year. Our infrastructure business was ahead of our budgeted expectations. Marketing came in slightly ahead of our outlook.
Our financial position is very strong, which has allowed us to return more capital to our shareholders, and we're excited about our opportunity to continue to grow both within our existing business lines and through energy transition. I will now pass the call over to Sean, who will walk us through our financial results in more detail. Sean?
Thanks, Steve. As Steve mentioned, another solid quarter, really across the board. Both our segments came in ahead of our expectation, as did adjusted EBITDA and distributable cash flow. Infrastructure adjusted EBITDA of CAD 109 million, which was a CAD 3 million increase from the Q4 2021, was slightly ahead of our expectations. This was driven by increased volumes at both the Hardisty terminal and on our Canadian pipelines, driving higher revenues. Comparing this quarter to the Q1 2021, wherein the adjusted EBITDA figure was effectively in line, the Q1 last year benefited from a one-time accrual reversal, wherein the current quarter that was largely offset by the contribution from the DRU, which was placed into service last summer. In the marketing segment, adjusted EBITDA of CAD 21 million was above our outlook range.
Refined products was fairly strong in the quarter in terms of asphalt and drilling fluids. Crude marketing did see opportunities from the increased volatility, but if you think of our core strategies, it still remains a somewhat challenging environment. That being said, the CAD 21 million earned in the quarter is very much an improvement over the CAD 3 million in adjusted EBITDA we earned in the Q1 last year, and even a nice step up from our most recent quarter, even after adjusting for the hedging impact we saw in Q4.
In terms of our outlook for marketing, we would expect the Q2 to come in at between CAD 10 million and CAD 15 million in adjusted EBITDA, which is somewhat in line with this quarter after adjusting for the expected impact from the turnaround we need to perform at Moose Jaw, which we expect we will begin in the next week or so. Recall that we are able to avoid having to perform a turnaround last year, which was a win for us. We estimate the turnaround will take about a month, meaning not only increased costs that will reduce the infrastructure-adjusted EBITDA in the quarter to the tune of about CAD 5 million, but will also reduce the amount of barrels that refined products is able to earn a margin on. Finishing up the discussion of results, let me quickly work down to distributable cash flow.
For the Q1 , we reported CAD 79 million, which was a CAD 15 million increase relative to the Q1 last year. When you look at it on a line-by-line basis from adjusted EBITDA down to distributable cash flow, it is very much comparable on each, with the primary driver of the improvement being the fact that last year's adjusted EBITDA included the previously mentioned one-time accrual reversal, which was non-cash and would not have contributed to distributable cash flow. On a trailing twelve-month basis, for the third consecutive quarter, both adjusted EBITDA and distributable cash flow increased relative to the prior quarter as we again posted a stronger quarter than we are rolling off. As a result, our payout ratio sits at 68%, which is below the bottom- end of our 70%-80% target range.
Our debt to adjusted EBITDA decreased to 2.7 times, which is below our 3-3.5 times target. On an infrastructure-only basis, our leverage would be 3.2 times and our payout ratio would be approximately 68%, where we seek to be below 4 times and 100% respectively under our financial governing principles. Speaking further to our financial position, we continue to maintain a fully funded position with ample cushion. Between our credit facilities and cash on hand, we had approximately CAD 800 million of available liquidity as at March thirty-first. Also, as part of being proactive to maintain our financial flexibility, we just finished extending our sustainability-linked credit facility to a full- 5- years, now maturing in 2027.
Since the start of the year, and very much reflecting our strong financial position, we have now bought back CAD 22 million in shares, with the ability to continue to do so through the balance of the year. I will stress that we don't seek to be formulaic or prescriptive in terms of timing or size of potential buybacks. However, we fully appreciate the market will likely judge companies on execution rather than intention. On that basis, we very much see our buybacks to date as a very good start. In summary, a great start to the year. Results from the infrastructure segment were strong and marketing was above our outlook range.
From a financial perspective, we remain in a very strong position being below both our leverage and payout target ranges, remaining fully funded with ample cushion, with significant available liquidity. We continue to be of the view that our business offers a strong total return proposition to investors with visibility to continued growth in our high-quality infrastructure cash flows, an attractive dividend that we've now grown for three straight years, the return of capital to shareholders through share buybacks in the quarter, with the expectation for additional buybacks in the future, all while maintaining a very strong balance sheet and financial position. At this point, I will turn the call over to the operator to open it up for questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, please lift your handset before pressing any keys. One moment for your first question. Your first question comes from Jeremy Tonet with JP Morgan. Please go ahead.
Hi, this is Stephen McGee on for Jeremy. Just wanted to start with the marketing as you guys came above the previous range. With Moose Jaw turning around here, I just wanted to get your thoughts on forward look here for marketing and just going beyond that in Q3 , Q4 and with the $80-$120 million long-term range, just how you see that progressing this year.
We'll talk about the Q1 , Stephen. You know, we came in at just above CAD 20 for the quarter. Some of that was carry in from last year, but we also carried some from this quarter into next quarter. Pretty good quarter overall. We had some, you know, crude trading opportunities, but we also had really one of our stronger quarters we've had in recent memory on the actual margin side, the above WTI for refined products coming out of Moose Jaw. We're seeing really strong margins when it comes to our distillates there. We did a lot of asphalt sales into the summer on a forward basis. We're seeing really strong demand for asphalt, really strong demand for roofing pellets, and really strong demand for our distillates.
On that side of the business, we're gonna see really kind of strong margins compared to our typical relationship to WTI. Now we're gonna have one month out in the quarter, so that's pulled us back, and that's probably why we're at that 10-15 that, you know, we talked about. I think just for the rest of the year, I think you know, the view would be that the, you know, market remains, you know, constructive but yet challenging at the same time, you know. We wouldn't expect to see material differences as we move through the back half. I mean, as you know, Stephen, every quarter, we provide sort of that one quarter in advance outlook and, you know, we'll expect we'll do that again. Really no update as we look into Q3 and Q4 as we sit here today beyond that Q2 .
Got it. Thank you. On, as far as buybacks go, I realize that you guys aren't formulaic, and I understand that. Just, I guess, going a little deeper because you talk about free cash flow, best use for marketing going towards share repurchases. I just wanted to, you know, I guess, figure out exactly how that would work with the CAD 22 million in buybacks in the Q1 . Just trying to see, like, is that kind of a typical cadence that maybe we might see going forward, just kind of looking at marketing results, or just any thoughts around that?
Yeah, yeah. No, thanks for that. I think, you know, if you go back to our capital allocation philosophy, you know, first and foremost, obviously remain within our financial governing principles, then fund growth capital. After that, to the extent that there's excess cash flow, then we've always said, you know, from infrastructure, we'd buy dividend increases if from marketing. I mean, as part of that excess cash flow too, you also need to take into account sort of total capital deployment and growth capital. You know, I think just simply pointing to marketing performance as a driver for buybacks, wouldn't actually be accurate. I think you need to look at the entire sort of cash flow waterfall for us. You know, the CAD 20 million that we made or just over CAD 20 million, that was actually really relatively close to what we expected.
When we came out with our guidance last quarter and talked about buybacks, that's very much where we expected to be. As we move through the year, you know, we just talked about sort of, you know, overall view on marketing. As we sit here and think about cadence for the remainder of the year, you know, where we bought back in this Q1 , you know, depending on how capital plays out for the remainder of the year, you know, it could be a reasonable assumption, certainly.
All right. That's all for me. Thank you, guys.
Stephen.
Your next question comes from Linda Ezergailis with TD. Please go ahead.
Thank you. Recognizing that we're in a very dynamic environment on a number of fronts, especially with this unfortunate exogenous shock on the geopolitical front, how are you seeing any structural shifts in the crude oil markets that's changing the nature and size of opportunities for both your marketing business and other investments? Or is it really still too early to tell? I guess I'm also wondering about your discussions with customers. Is there an urgency maybe both on the energy transition front as well as energy security also becoming a bigger consideration, which might shift how and what you're doing for your customers?
Thank you, Linda. This is Steve. You know, the unfortunate events that's happened globally, I think that accelerated a little bit. I think the market was, you know, projected by many people to get to $125 by the middle of summer. I think it accelerated it some. I think fundamentally, the fundamentals are still quite sound for continued, you know, strength in crude oil and continued demand for refined products. With that, I think, you know, where we see the kind of the first real strength is in our marketing business around Moose Jaw and the refined products that I talked about earlier. As far as growth, we do see growth.
We have seen some minor growth in our gathering systems, our crude oil gathering systems, especially in Canada and also down south. You know, there's only about 5% of our business, so we don't have a lot of torque when it comes to the actual drill bit. We were already moving forward with energy transition, and these are the kind of long- lead item projects that take a long time to put together. I don't know that it's put any more emphasis on it other than, you know, a more security that energy transition is going to happen. Sean, would you add anything to that?
Nope. I think you got it.
Thank you. Just as a follow-up, in terms of recognizing that there are certain things that are gonna constrain the pace of energy transition and increasing security for North America and its global allies, how do you think about partnering or acquisitions to potentially pivot a bit faster to the extent you can to service those needs?
You know, I think we're definitely looking at the opportunity for partnership in energy transition. That is definitely part of our strategic plan, to do partnerships within energy transition. As far as actually M&A, we haven't done a lot of real hard search in the M&A side, mostly because of the high- multiples in that business. We think strategically that we have a really good team put together to execute these projects that we're chasing.
Thank you. I'll jump back in the queue.
Your next question comes from Robert Hope with Scotiabank. Please go ahead.
Morning, everyone. Another energy transition question. Steve, in the prepared remarks, you mentioned that you wanna leverage your existing skill set to go after some energy transition investment opportunities. You know, you've had a team in place for quite some time. How is the strategy evolving, you know, beyond the renewable fuels that I guess would be the first tranche of energy transition projects? Beyond that, kinda what areas of energy transition do you want to explore?
You know, I think, you know, since we have the DRU, which is, you know, and we have the Moose Jaw kind of refinery, I think probably the thing we're looking at, the leading opportunity is probably an HRD facility. That's probably our leading opportunity that we're actually looking at right now, Rob. We think we have, you know, the skill sets both on the engineering side and on the operational side. And we have a pretty extensive marketing organization too. So we feel pretty comfortable in that space. Now, we do think maybe down the road, there might be additional opportunities, you know, for verticals off of that, but that's still too early to really talk about, Rob.
All right. Thanks for the color. Just, you know, shifting back to the DRU, you know, it's been up and running for some time. It seems like ConocoPhillips' looking upon the project favorably. You know, how have the other discussions with customers regarding expansion gone? Like, is the market now accepting of kinda the logistical chain and, you know, the economics of the project, and now it's just kind of the nitty-gritty of the contracts? Or, you know, where are we in terms of contractual discussions, and kinda what are the key hang-ups right now?
You know, I think ConocoPhillips is very happy with the process. I think now it's just getting this as a strategic opportunity, you know, for the rest of the kind of the Canadian heavy oil producers. You know, they make very strategic you know, decisions. Down on the southern side, you know, the US refiners are getting more and more comfortable. We think there's pretty significant upgrade versus the dilbit. You know, we've been told it's anywhere from $3-$5 uplift for the US refiner.
Thank you.
Your next question comes from Robert Kwan with RBC Capital Markets. Please go ahead.
Great. Good morning. Look, there's been a lot of talk about the different growth initiatives, and I'm just wondering if you're able to to rank order the probability of these coming to fruition over the next 12 months. You know, you've talked about tanks for Trans Mountain DRU expansions, renewable diesel. If you can also throw M&A out there. I know, Steve, you mentioned that M&A on the energy transition front isn't something that you've been pursuing, but last call, you kind of just generally brought up M&A. When you think about those four things, and if I've missed something, you know, let me know. But how would you rank order the probability of that coming to fruition?
I would say tanks at Edmonton would probably be the highest- priority. That's, that got pushed by the delay in TMX. That's more than likely a second half type opportunity. I would say on the next one is the DRU. I think we're very close on a couple of opportunities. We're very close on completing some things around the DRU. I would say that the HRD facility. We're chasing several opportunities there. We feel pretty comfortable that we'll be able to land one of those. M&A is always the more difficult one, Robert. 'Cause we want to buy it. If we do something, we wanna do something that we know would fit us, and then it's gonna kind of. Then you gotta actually find a willing seller that would do it at the price that we're gonna be willing to buy it at. So that's probably the longest shot, Robert.
Okay, that's great. Just drilling down on the energy transition side, you talked about the potential to get back to that CAD 300 million of CapEx per year. That's, you know, call it a CAD 150 million-dollar uplift from, you know, the target here. When you look at the mix there, is that a bunch of small projects or are there kind of two or three, you know, chunky things that maybe, you know, it is the renewable diesel project? Like how would you characterize what would get you to that 300 level?
I would say, you know, the DRU and the tankage, you know, that's that CAD 150-CAD 200 range, Robert. I would say if we do something larger in the energy transition phase, that's the opportunity to kind of push us up to that CAD 300 million range.
Okay. It's kind of one or two chunky projects that are gonna get you there. It's not a collection of little things you're working on.
Well, no, we have potential expansions there at Edmonton on the, you know, on the MSA. We have some smaller opportunities at Moose Jaw, some smaller opportunities at Hardisty and some gathering opportunities down in the States. You know, those are all CAD 10 million and CAD 15 million, but they do add up.
Okay. That's great. Appreciate the color.
Your next question comes from Robert Catellier with CIBC Capital Markets. Please go ahead.
Hi, good morning. A couple of follow-ups here. Could you just speak to specifically how energy security and, you know, the current level of market pricing is impacting traction and discussions on the DRU? Is it a big energy security consideration?
Yeah. I haven't seen it from the US. side yet, Robert, as far as accelerating, you know, that energy security from the US. market side. I've probably seen a bigger driver really in Canada recently, just for the economics alone, right? Because it does beat the pipeline economics. You know, several of the shippers that were on that Keystone continue to look for long-term, you know, offtake to the US. Gulf Coast. Those are the ones that are probably the hottest right now, Robert.
Okay. That's helpful. Just given the market volatility and the higher commodity prices, how is that impacting how you're managing the marketing business in terms of working capital and requirements and value at risk? Obviously there, I'm thinking about the crude oil marketing as opposed to the refined products.
Yeah. No, thanks for that, Rob. I mean, how we manage it really hasn't changed. You know, as you'd be aware, we have risk management committee. We've got risk policies in place. You know, our marketing group always adheres to that. Specific to working capital, it's a topical question, especially given this quarter. You would have seen, you know, the volume or the value of the inventory that we've been holding, you know, generally has been increasing over time, while the volume's been staying relatively flat. That's just purely a function of actual commodity prices. You know, this quarter was a bit abnormal in the sense that inventory actually stayed relatively high, but you saw a big working capital swing, which actually drove our leverage down. That was really just a function of timing of purchases and sales.
It really was when FX exchange happened and when they sold the product relative to when they bought it. You know, so we would expect, you know, our leverage down at that 2.8. That was a bit of a temporal phenomenon given that. You know, we're more in the range as we think about it on a run rate basis. You know, as a whole, really no change in how we think about it. You know, we need to make sure that the inventory we hold, you know, we don't get above our financial governing principles due to, you know, carrying a certain amount of inventory. You know, we're carrying a volume right now that is not abnormal from a historical perspective.
You know, the value certainly as commodity prices have gone up, you know, the value of that's gone up, but I mean, that is very manageable within our governing principles as you've seen. I mean, from a risk perspective, there's absolutely no change. I mean, our entire marketing group is operating under the guidelines and the procedures from a risk management policy. There really has been no change from that perspective.
Okay. That's helpful, and it does lead to my last question. I'm trying to balance, you know, your capital requirements versus your, you know, where you are in terms of leverage to sort of get to an area as to what you might repurchase in terms of, you know, continuing the activity under the normal course issuer bid. We're into May now without any significant new project additions having been announced. Now, it sounds like there could be some in the second half. If I understand your answer to the last question, Steve, it looks like there's a working capital requirement as well for the marketing business, just given where the prices are. Is that the way to look at it? You know, there's probably a working capital requirement coming.
You wanna keep some flexibility in case you have other new projects added later in the year. The CAD 22 million might not be annualized in terms of repurchases.
No, I think again, more what I was trying to refer to there. There will be a working capital requirement certainly, but it's not massive, and it really wouldn't change the narrative in and around that. You know, I think to the first question, I answered. You know, as we sit here today, you know, we had a buyback plan as we entered the year. You know, that was based on budgeted results. You know, we did come in slightly above budget in this Q1 . We're very happy with how that ended up. You know, capital forecast hasn't changed as we sit here today. You know, we always had an intention, if we're gonna buy back shares, that it would be somewhat notable relative to the size of the company.
I think something in that, you know, CAD 20 million-CAD 25 million quantum is, you know, wouldn't be unreasonable to expect as we move through the year, with the big swing factor being at the tail end of the year, is really timing of some of these capital projects that Steve talked about earlier.
Just to clarify, that's another 20-25 is possible through the balance of the year?
No, that would be quarterly.
Okay. Got it. Thank you.
Your next question comes from Benjamin Pham with BMO. Please go ahead.
Hi. Thanks. Good morning. I was wondering if you can frame perhaps your expectations on EBITDA growth or DCF per share growth when you think about that, your CapEx ranges at CAD 150 million all the way up to CAD 300 million.
Yeah, I mean, it depends on what the baseline you're talking about, Ben. I mean, I think the best way to answer that is, you know, as you talked about us deploying CAD 150, we would expect to deploy that at our 5-7x EBITDA multiple, and you build up that. I mean, again, marketing is gonna move around a bit. We give that guidance quarter- to- quarter. On a consolidated basis, it makes a bit less sense. Just if you think about the deployment of capital, you know, our expectation, it'll continue to be deployed at that 5-7x EBITDA multiple. You know, our target for this year remains CAD 150.
As we said when we put out our capital release, you know, we still need some sanctions as we move through the year to get to that CAD 150. I think probably that's the way I'd approach that. Really just given, you know, some of the non-recurring items that we had last year. It's tougher to take sort of a year-over-year growth number, you know, explicitly. I think, again, you know, we would expect to deploy this capital in a fashion that we have historically and to build off of that.
Your next question comes from Andrew Kuske with Credit Suisse. Please go ahead.
Thanks. Good morning. Steve, you made it fairly clear that M&A is a low- priority for you. I guess maybe just framing a hypothetical, do you have any kind of inclination to look at maybe legacy energy assets? Is there anything sort of tempting that maybe you could buy on a value basis and generate outsized returns, but maybe would create some contagion for your ESG side? I guess maybe a buffer on the ESG side is you're just really so best in class on an emissions basis relative to others, or is anything along that path just sort of a no-go zone?
Yeah, Andrew, I wouldn't say it's a low- priority. What I said, it was the lowest probability. That doesn't mean it's a low- priority. You know, when we look at M&A, I mean, traditionally we are a crude oil liquids type of business. So those are the type of assets we're gonna look at. As a general rule, those assets don't have the emissions on the drivers. You know, things like the HRD facility could potentially increase our emissions thresholds. Even though they're very much, you know, energy transition, they could actually increase our emissions ratios or and our. We have to balance these things. These are definitely discussions we have with the board. We are committed to our ESG targets. There are things that we need to balance as we move forward. I don't know, Sean, would you add?
Yeah, no. I mean, as with anything, there's numerous things that you would need to evaluate in looking at M&A. You know, impact on our energy transition or ESG initiatives is certainly forefront in one of the strategic things we would think about. You know, the other ones would certainly be, you know, quality of cash flows, inherent growth profile, synergy with existing assets. You know, all of those would be taken into consideration. I think if I understood the question directly, I mean, just because we have a lighter emission footprint right now doesn't necessarily mean that we have an outsized ability to take on additional emissions, is I think the short answer. Any M&A would have to be absolutely on strategy for us and, you know, there's a number of different factors there.
Okay, appreciate that. Maybe just an extension. Do you see any ability to, you know, partner with private capital to maybe accelerate some of your organic opportunities that you have and remain in a window where you can still do the share buybacks, have good balance sheet management, all of those things that you've delivered in the last few years? Maybe also supplement M&A where you've got the expertise on an operational basis, but someone else has maybe greater financial capacity.
Yeah, I'll take that, Andrew. I mean, given, you know, Steve talked about earlier sort of our visibility to growth capital. You know, some of these energy transition opportunities like the HRD hit getting up to that, you know, circa CAD 300 million a year number. I mean, to the extent that we're deploying that, then there wouldn't be a need for external capital. I mean, we can fund that internally, you know, within our financial governing principles, and we think that'd be the best return to shareholders.
I mean, to the extent that we had a capital opportunity in excess of that where we couldn't internally fund it, I mean, that would be an absolutely fantastic problem to have for us, and we'd be happy to explore, you know, partnering with private capital or other pockets of capital to affect that, and we would certainly look into it. I mean, at the levels we're talking about, we can internally fund that. To the extent it goes above that, you know, absolutely it's something we would think about. You know, that is a high-class problem and one we look forward to tackling.
Nice to have high-class problems, but thank you for the time.
Your next question comes from Patrick Kenny with National Bank. Please go ahead.
Yeah, good morning, guys. Just back on the clean fuels opportunities here and just wondering if you can just clarify what you'd like to see on the Canadian clean fuel standard front. And then also if you could touch on, you know, with the carbon intensity reduction target moving towards 1.5% per year, up from 1.2. Just any thoughts on how this accelerated path might increase demand from your downstream customers over the coming quarters for some additional biofuels blending capacity?
Hey, Pat, it's Mark here. Very good question. Obviously a positive that the CI reduction path accelerated because that's gonna drive more demand. I think there's several things we're looking under the fuel standards, but the one thing that I think is really important is what the alternate paths to compliance are. I think what you'd wanna know is that, you know, there's gonna be a market for the fuel, the product, but also that those credits are gonna be holding value because as we know from, you know, other markets, the cost of producing the renewable fuel exceeds the conventional fuel. I think it's really important that you see that the tip-to-tail crack spreads turn around.
Okay, that's great. And then, Sean, just to come back to the funding conversation there, and you touched on, you know, potentially looking at partnerships should your growth capital move back more in line or potentially above pre-pandemic levels. But curious how you would view recycling some capital from your legacy, you know, more mature assets and redeploying into the transition value chain.
Thanks, Pat. I mean, if I understand that correctly, is that, you know, partial monetization of something like Hardisty to recycle into energy transition, is that sort of what you're referring to?
Yeah, exactly. Not just, you know, non-core assets as you've already done, but looking more at sort of the core mature asset base. Exactly.
Yeah. Again, I mean, I would look at that similar to private capital in the sense that, I mean, given our visibility right now and around our capital deployment, even if some of these larger projects hit, we can internally fund that, we can retain 100% of our assets. I mean, you know, to the extent, again, you know, we had a call on a capital that was much greater than that, then we'd look across the board at potential funding avenues. You know, something like that could be in the cards potentially. It depends on the project and what we're doing. You know, it could mean private capital, as we talked about. You know, or, you know, we could try and self-fund it.
I mean, again, these are high-class problems to have, and not one that we see really right in front of us right now, but we'd have to look into it.
Excellent. Appreciate the color. Thank you.
There are no further questions. I would now like to hand the call back to Mr. Chyc-Cies.
Well, thanks everyone for joining us on our 2022 Q1 Conference Call. Again, would like to let you know that we've made certain supplementary information available on our website, which is gibsonenergy.com. I'd like to also remind everyone that we will be holding our virtual annual general meeting later today at 10 A.M. Mountain Time or noon Eastern. Details are available on our website and participants are encouraged to register for the live audio webcast at least 10 minutes prior to the presentation start time. Hope you're able to join us. If you have any further questions, please reach out to us at investor.relations@gibsonenergy.com. Thank you. Have a great day, and thanks for your support for Gibson.
Ladies and gentlemen, this concludes your Conference Call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.